2008 OASDI Trustees Report

This section presents long-range projections of the operations of the com­bined Old-Age and Survivors Insurance and Disability Insurance (OASI and DI) Trust Funds and of the Hospital Insurance (HI) Trust Fund expressed as a percentage of gross domestic product (GDP). While expressing these fund operations as a percentage of taxable payroll is the most useful approach for assessing the financial status of the programs (see table IV.B1 and section IV.B.1), analyzing them as a percentage of GDP provides an additional per­spective on these fund operations in relation to the total value of goods and services produced in the United States.

Table VI.F4 shows estimated income excluding interest, total cost, and the resulting balance of the combined OASI and DI Trust Funds, of the HI Trust Fund, and of the combined OASI, DI, and HI Trust Funds, expressed as per­centages of GDP on the basis of each of the three alternative sets of assump­tions. The estimated GDP on which these percentages are based is also shown in table VI.F4. For OASDI, income excluding interest consists of pay­roll-tax contributions, proceeds from taxation of benefits, and various reim­bursements from the General Fund of the Treasury. Total cost consists of benefit payments, administrative expenses, net transfers from the trust funds to the Railroad Retirement program, and payments for vocational rehabilita­tion services for disabled beneficiaries. For HI, income excluding interest consists of payroll-tax contributions (including contributions from railroad employment) and proceeds from taxation of OASDI benefits. Total cost con­sists of outlays (benefits and administrative expenses) for insured beneficia­ries. Both the HI income and cost are on an incurred basis.

The OASDI annual balance (income excluding interest, less cost) as a per­centage of GDP is projected to be positive on the basis of the low cost assumptions until 2021. After 2020, deficits increase to a peak in 2033 and decrease thereafter. By 2063, the OASDI balance becomes positive, reaching 0.14 percent of GDP in 2082. The OASDI balance is projected to be positive through 2016 on the basis of the intermediate assumptions and through 2013 on the basis of the high cost assumptions, at which time balances become permanently negative, with increasing deficits thereafter. The HI balance is projected to be negative in the first projection year under all three sets of assumptions, with deficits increasing steadily thereafter under the intermedi­ate and high cost assumptions. The projected HI balance as a percentage of GDP is positive from 2009 through 2019 on the basis of the low cost assumptions. The combined OASDI and HI balance as a percentage of GDP is projected to be positive through 2020 under the low cost assumptions, through 2014 under the intermediate assumptions, and through 2010 under the high cost assumptions. Between 2010 and about 2035, under all three sets of assumptions, both the OASDI and HI balances as percentages of GDP are projected to decline (or deficits increase) substantially because the baby-boom generation reaches retirement eligibility age during these years. After balances cease to be positive under the intermediate and high cost assump­tions, the annual deficits increase fairly steadily for the combined OASDI and HI programs.

By 2080, the combined OASDI and HI balances as percentages of GDP, are projected to range from a deficit of 0.76 percent for the low cost assumptions to a deficit of 11.39 percent for the high cost assumptions. Projected balances differ by a much smaller amount for the tenth year, 2017, ranging from a positive balance of 0.31 percent for the low cost assumptions to a deficit of 1.34 percent for the high cost assumptions.

The summarized long-range (75-year) balance as a percentage of GDP for the combined OASDI and HI programs varies among the three alternatives, by a relatively large amount (from a deficit of 0.05 percent, based on the low cost assumptions, to a deficit of 5.80 percent, based on the high cost assump­tions). The 25-year summarized balance varies by a smaller amount (from a positive balance of 0.60 percent to a deficit of 1.73 percent). Summarized rates are calculated on the present-value basis including the trust fund bal­ances on January 1, 2008, and the cost of reaching a target trust fund level equal to 100 percent of the following year’s annual cost at the end of the period. (See section IV.B.4 for further explanation.)

The difference between trust fund operations expressed as percentages of taxable payroll and those expressed as percentages of GDP can be under­stood by analyzing the estimated ratios of OASDI taxable payroll to GDP, which are presented in table VI.F5. HI taxable payroll is about 25 percent larger than the OASDI taxable payroll throughout the long-range period (see Appendix VI.F.1 for a detailed description of the difference). The cost as a percentage of GDP is equal to the cost as a percentage of taxable payroll multiplied by the ratio of taxable payroll to GDP.

Over the long-range period, projected growth in taxable payroll differs from projected growth in GDP primarily due to the assumed trend in the ratio of wages to total employee compensation—i.e., wages plus fringe benefits. The ratio of earnings to total worker compensation declined at an average annual rate of 0.25 percent for the 40 years from 1966 to 2006. For the 10-year peri­ods 1966-76, 1976-86, 1986-96, and 1996-2006, the average annual rates of change were -0.57, -0.30, 0.04 and -0.15 percent, respectively. Ultimate future annual rates of decline in the ratio of wages to employee compensa­tion are assumed to be 0.1, 0.2, and 0.3 percent for the low cost, intermedi­ate, and high cost assumptions, respectively. An additional factor that has made the overall ratio of taxable payroll to GDP decline in recent years is the decline in the ratio of taxable wages to covered wages, as a result of the rela­tively greater increases in wages for persons earning above the contribution and benefit base. This decline in the taxable ratio is assumed to continue at a slower pace through 2017, with no further decline thereafter.